Euro area: inflation falls, but Lagarde will continue with her restrictive work
the decrease in tensions on the energy markets is also being felt at the Euro Area level . The consumer price inflation rate in the Euro Area fell to 6.1% in May 2023, down from 7.0% the previous month and below market expectations of 6.3%. according to a preliminary estimate. THE
The rate hit its lowest level since February 2022, while remaining significantly above the European Central Bank's target of 2.0%. The decrease in inflation was mainly driven by a 1.7% drop in energy prices , following a 2.4% increase in April. In addition, there was a slowdown in the cost pressures of food, alcohol and tobacco (12.5% vs. 13.5%), non-energy industrial goods (5.8% vs. 6.2%) and services (5.0 % against 5.2%). Furthermore, the core inflation rate, which excludes energy, food, alcohol and tobacco, also fell more than expected, reaching 5.3%.
Here are the relative graphs, at one year and at 10 years
While it may at first glance look good for policy makers, the “stickiness” of the core measure will be the excuse used by ECB officials to continue their tightening policy, with continued tightening of interest rates, despite Germany going into recession .
“ There is no clear evidence that core inflation has reached its peak ,” Lagarde said in a speech in Hanover, Germany.
“ We have made it clear that we still have ground to go in order to bring interest rates to sufficiently restrictive levels .”
The market remained silent on ECB rate hike expectations, with a 25 percentage point hike in June and a 40% probability of another 25 percentage point hike in July.
“ Yes, headline inflation is coming down, as food and energy shocks begin to dissipate ,” Laura Cooper, Blackrock senior macro strategist for ishares EMEA, told Bloomberg Television earlier this week.
“But it is clear that services inflation, the core indicators, continue to show price persistence and this suggests that the ECB will need to keep rates in tight territory for quite some time,” he said. These words are great when spoken from the offices of a bank, but less so when you're part of the real economy.
Core inflation remains high because, after several months of high inflationary pressure due to skyrocketing energy prices, it is almost obvious that there is a pressure to adjust wages: in the end, no one agrees to become poorer due to energy policy mistakes Europeans . The restrictive policy, in this case, will have the effect of severely reducing real wages, making everyone poorer.
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The article Euro area: inflation falls, but Lagarde will continue with its restrictive work comes from Scenari Economici .
This is a machine translation of a post published on Scenari Economici at the URL https://scenarieconomici.it/area-euro-cala-linflazione-ma-la-lagarde-proseguira-con-la-sua-opera-restrittiva/ on Thu, 01 Jun 2023 15:49:58 +0000.